Hamlet famously asked, “Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles”. Last week, Chevron decided it was wiser to buy Noble Energy for US$5 billion in shares and take on Noble’s US$8 billion in debt, thus purchasing Noble’s giant Israeli gas fields in the deep waters of the eastern Mediterranean. Chevron offered only a 12 per cent premium to the ten-day rolling average of Noble’s stock price, and the deal marked the first major industry consolidation since the oil price collapse in March.
Noble provided an easy target for Chevron following its lucrative rebuttal in the battle to takeover Anadarko in 2019, when Chevron was finally outbid by Occidental Petroleum. Occidental agreed to pay US$38 billion for Anadarko, and Chevron received a US$1 billion break fee from Anadarko, when the Texas-based player opted to accept Occidental’s higher bid over Chevron’s initial offer.
Nice money for doing nothing, and the Anadarko take-over has proved a disaster for Occidental, with The Houston Chronicle asking whether the company will even survive (here).
Chevron gets Israeli and Cypriot Fields with Noble
The Israeli government will be delighted to have an American supermajor operating the Tamar and Leviathan gas fields, cementing its close ties to the United States. The deal further highlights the new, deep-water gas plays which are emerging in the eastern Mediterranean, turning the region into a centre of bitter, geopolitical rivalry.
As well as the Israeli fields already in production, Noble has made the five trillion cubic feet [141.5 billion cubic metres] Aphrodite gas discovery offshore Cyprus, in around 1,700 metres of water (here), which it operates with Delek Energy of Israel and Shell as partners. Total and ExxonMobil have also discovered the large Calypso and Glaucus deep-water gas reservoirs off Cyprus. Like Aphrodite, these big discoveries remain waiting for an export solution before they can come into production.
Syria is not the only trouble spot
The travails of Syria, beset by a nine-year civil war, which has claimed the lives of over 560,000 soldiers, fighters and civilians, up until the end of 2018, according to the Syrian Observatory for Human Rights (here), are well known internationally. That war has seen over 100,000 people tortured to death in Syrian prisons by the Russian-backed Assad regime, activists claim, the use of chemical weapons, and military intervention by Turkey, Russia, the US, UK and Israel, as well as Iranian-backed Hezbollah fighters from Lebanon.
The conflict has led to over five million Syrian refugees fleeing abroad, mainly to Turkey and Lebanon, and over six million people being internally displaced in Syria. Syria is a humanitarian disaster and a horrific bloodbath, and also an undeveloped, deep-water offshore gas play which has never been drilled, at the risk of sounding callous.
But Syria’s violent and devastating conflict is only one part of a complex jigsaw of tension in the Eastern Mediterranean, which is both one of the highpoints for the international energy business, and a geopolitical flashpoint. Turkey has territorial disputes with both Cyprus and Greece, as we shall see, whilst Lebanon faces a grave financial, social and political crisis after its currency collapsed and thousands poured onto the streets to protest as the country’s banks went bust over the last few months.
To cap a bad run in Beirut, Total’s inaugural deep-water gas well there, drilled earlier this year by the Vantage Drilling floater Tungsten Explorer, ended up as a dry hole.
Libya suffers civil war
Meanwhile, Libya is torn between a Turkish-backed government in Tripoli, recognised by the United Nations, known as the Government of National Accord, and the Egyptian-backed rebel general, Khalifa al Haftar, who controls the Libyan National Army and the east of the country. The country has been riven by violence since the revolution of 2011, which saw Colonel Gadhafi overthrown and killed in a gutter. Haftar attempted to unsuccessfully besiege Tripoli earlier in the year, and is also aided by the United Arab Emirates, Russia and France.
Earlier this month, the Egyptian parliament authorised the deployment of its troops to its “western front”. Now it is possible that Egyptian forces may invade eastern Libya in support of General Al Haftar, taking arms against the sea of trouble there, following pleas from Libyan tribal leaders in the eastern desert, who flew to Cairo and urged Egyptian president Al-Sisi to intervene on Haftar’s side against the Government of National Accord. In June, Russian jet fighters flew from an air base Russia controls in north-west Syria to deploy in eastern Libya to assist the rebel general as well.
Failed state where Russia and Turkey face off
Libya once exported over a million barrels of oil a day. Now, only offshore fields managed by Total and ENI manage to export crude. Libya’s National Oil Corporation (NOC) had announced on July 10, that it was lifting its declaration of force majeure on oil exports from its onshore fields. Unfortunately, this proved very short lived, wishful thinking even, and the NOC had to reimpose the export blockade two days later, following fierce fighting, as the Tripoli-based Government of National Accord attempted and failed to retake the port of Sirte from General Al Haftar.
Both the Government of National Accord and the Libyan National Army have been deploying a total of around twenty thousand Syrian mercenaries in the Libyan conflict, on salaries typically around US$200 per month (here), whilst Russian mercenaries from the Wagner Group also ply their bloody trade there (here). Throw in thousands of economic migrants and would-be asylum seekers from West Africa trying to reach western Europe through Libya and the Sahara, and the country is a definition of a failed state.
How Libya, like its war-torn peers Syria and Yemen, can ever be reconstituted as a functional nation state, is not clear. Indeed, as Donald Trump recently said of the coronavirus, it may get worse in Libya before it gets better (here).
Cyprus, disputed island rich in gas
Further north, Turkey lays claim to almost the entire exclusive economic zone of Cyprus, the disputed island, where the self-declared Turkish Republic of Northern Cyprus administers the northern part area following a coup and a crisis there in 1974. Turkish armed forces are stationed in the north of the island, whilst the Greek speaking government in the south is internationally recognised and is a member of the EU.
Turkey’s navy prevented Italian energy group Eni from drilling a wildcat well off Cyprus using the Saipem 12000 drillship in February 2018, forcing the rig to abandon its efforts to drill.
Turkey as offshore driller
Turkey’s state-owned Turkish Petroleum bought two deep-water drillships, Deepwater Metro 1 and 2 in 2017 and 2018 through bankruptcy auctions, along with some older PSVs from Siem Offshore to support them.
Turkish Petroleum then promptly began drilling exploration wells in the Exclusive Economic Zone of Cyprus using the former Deepwater Metro units, which the Turkish company has renamed Yavuz and Fatih. In October last year, Yavuz drilled the Guzelyurt-1 well in Cypriot waters, just after this acreage was awarded to Total and Eni as Block 7 by the government of Cyprus.
Last week, Turkish Petroleum started a seismic survey in the eastern Mediterranean using its own Turkish-built vessel Oruc Reis. This provoked fierce objections from Greece. Athens claimed that the Turkish seismic work violates its territorial waters.
Turkey ignored the protests. “We are tearing up and throwing away the maps of the Eastern Mediterranean that imprison us on the mainland”, the deputy president of Turkey, Fuat Oktay, stated last month.
World’s most technically challenging pipeline
The day before Chevron announced its acquisition of Noble, Israel’s energy minister approved a plan to build the 1,400-kilometre-long East Mediterranean gas pipeline from Israel to Cyprus and Greece to export Noble’s gas from Leviathan in the next phase of the field development. The pipeline might also take gas from Eni’s deep-water Zohr gas field off Egypt as well.
In June offshore construction giants Saipem and Allseas submitted bids for the engineering of the pipeline to IGI Poseidon, which will own and operate it. IGI Poseidon is a joint venture between two EU gas utilities, Depa of Greece and Edison of Italy.
The pipeline is supported by both the EU and the United States. It will potentially transport 11 billion cubic metres of gas a year to Cyprus, then to Greece, where it will feed Israeli and Cypriot gas into the Greek export pipeline network to Italy. The route is technically challenging, with water depths of up to 3,000m along the proposed route, and tough subsea canyons to cross near Crete.
IGI Posidon has stated that it plans to approve the project two years from now, with first gas targeted for 2026 or 2027.
The slings and arrows of outrageous fortune in the Med
With Russia and Turkey aggressively facing off in Syria and Libya, and Israel now allied to Cyprus and Greece in their dispute with Ankara, the eastern Mediterranean is a flashpoint which the world can scarcely ignore. “Thus bad begins, and worse remains behind,” as Hamlet himself puts it.
Critics say that European gas prices are too low to support the export ambitions of Israel and Cyprus to Greece and Italy, and that Europe should not increase its dependence on gas (although, actually, gas will be an important transition fuel for the EU, as we argued here last week). But the challenges are less technical and economic than political. Turkey is embarked on its most expansionary foreign policy since the days of the Ottoman Empire, and the eastern Mediterranean is now a complex powder keg of regional rivalries, religious tensions, and longstanding political disputes.
With two failed states, and Lebanon also in a critical condition, the chances for enduring peace in the area look weak, as more and more powers interfere and engage military forces. The massive gas discoveries that Noble, Eni and others have made have only served to exacerbate tensions.
Hamlet ends (spoiler alert!) in scenes of carnage. Let’s hope that further violence can be avoided in the eastern Mediterranean.
This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.